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As technology has grown more complex, it has become increasingly important for industry to adopt common sets of technical guidelines, or standards, so that, for example, computers can communicate with each other. As standards have proliferated, so have patents covering all or portions of standards. Not coincidentally, defendants in infringement suits have increasingly asserted defenses based on the “standards abuse” of patent holders. Standards are formulated by standards organizations. The standards organizations may be national (e.g., the American National Standards Institute), international (e.g., the International Telecommunication Union) or continental (e.g., the European Telecommunications Standards Institute). The issue of standards abuse may surface during a patent infringement lawsuit. If a plaintiff’s patent covers portions of standards, the defendant, depending on the facts of the case, may challenge enforcement of the patent based on the plaintiff’s activities before the standards organization. Equitable estoppel, laches, patent misuse and antitrust counterclaims may be several avenues available to the defendant. A recent case, Townshend v. Rockwell International Corp., 55 U.S.P.Q.2d 1011 (N.D. Cal. 2000), suggests that courts may be accepting the principles set forth by the Federal Trade Commission in Dell Computer, No. C-3658 (May 20, 1996) (consent order), for determining whether standards abuse exists. Previous remarks by William J. Baer, director of competition at the Federal Trade Commission, also illustrate the importance decision-makers now attach to Dell Computer. See“Antitrust Enforcement and High Technology Markets,” Prepared Remarks of William J. Bauer before the ABA Sections of Business Law, Litigation, and Tort Insurance Practice, San Francisco, Nov. 12, 1998. Bauer cited Dell’s conduct in Dell Computeras an example of standards abuse. Since cases involving standards abuse are comparatively rare, the district court’s approval in Townshendof the guidelines used in Dell Computermay be significant. FTC FOUND STANDARDS ABUSE IN ‘DELL COMPUTER’ CASE In Dell Computer, the FTC prohibited Dell from enforcing a patent based on its standards abuse. Dell was a member of the Video Electronics Standards Association (VSHA). In June 1992, the VSHA approved a standard relating to VL-bus design — the VL bus carries information between a computer’s central processing unit and its peripheral devices. One year earlier, however, Dell had obtained a patent that covered portions of that standard. Dell did not disclose the existence of the patent to the VSHA. In fact, a Dell representative signed a certification stating that Dell had no patents covering the standard. In holding Dell liable for standards abuse, the FTC relied on several factors. First, the FTC emphasized that the VSHA might have adopted a different standard had Dell disclosed the existence of its patent. In Dell Computer, the standard was widely adopted, and changing the standard would require the expensive redesign of equipment. Second, the FTC said that Dell’s affirmative misleading conduct was important in its liability determination. As mentioned, Dell signed a statement certifying it had no patents that covered the standard. Finally, the FTC emphasized the importance of unwritten disclosure policies in holding that there was a duty for Dell to search its patent portfolio. In the case of Dell, the FTC said that there was a duty to search since members expected each other to make a good-faith effort to disclose patents. SIMILAR RESULTS IN OTHER STANDARDS-RELATED CASES The result in Dell Computercomports with the results of other standards-related decisions. For example, in Potter Instrument Co. Inc. v. Storage Technology Corp., 207 U.S.P.Q. 763 (E.D. Va. 1980), Potter sued multiple defendants for infringement of multiple patents. The defendants asserted a defense of estoppel based on Potter’s activities before the American National Standards Institute (ANSI). The ANSI subcommittee in question had a written policy, which required a patent owner to notify the subcommittee of any patents to be included in a proposed industry standard and to agree to offer licenses to members of industry on “reasonable and non discriminating” terms and conditions. Although Potter’s representatives attended meetings at which the standard was discussed, they did not disclose Potter’s ownership of any patent covering the technology at issue. The court held that estoppel applied because Potter intentionally failed to bring its ownership of the patents to the committee’s attention, despite ANSI’s written policy, which required disclosure. Similarly, in Wang Laboratories Inc. v. Mitsubishi Electronics America Inc., 30 U.S.P.Q.2d 1241 (C.D. Cal. 1993), Wang promoted its design as an official industry standard before the Joint Electronic Devices Engineering Council (JEDEC), an electronics standards body. Wang filed a patent application on its design, which was incorporated into a standard. Later, after the industry began producing products using the design, Wang asserted its patent rights. The court found that JEDEC had both a written and an unwritten policy requiring the disclosure of patents. It held that, although the written policy was persuasive in determining misleading conduct, it was not controlling. The court further held that Wang had acted in a misleading manner and had violated both the written and unwritten policies of JEDEC. With regard to the written or unwritten policies of the standards organization, Dell Computercan be contrasted with the approach taken by the court in Stambler v. Diebold, 11 U.S.P.Q.2d 1709 (E.D.N.Y. 1988). In that case, a patent infringement defendant asserted an equitable estoppel defense. In the mid-1970s, Leon Stambler was involved with an ANSI committee and proposed a standard that incorporated patented technology. The standard was eventually adopted. Even though Stambler believed the defendant was infringing his patent, he waited until 1985 to sue for patent infringement. The district court held that equitable estoppel applied. In particular, the court held that Stambler “could not remain silent while an entire industry implemented the proposed standard” and then later assert that his patent covered the standard. This type of conduct, the court said, was “affirmatively misleading.” In Stambler, a general duty was held to exist regardless of the written or unwritten policies of the standards organization. On the other hand, in Dell Computer, the FTC took a more conservative approach and examined only the written and unwritten patent disclosure policies of the standards organization. UNRESOLVED ISSUES INCLUDE DISCLOSURE OF APPLICATIONS Dell Computerleft some questions unanswered. For example, must patent applications be disclosed? On the one hand, patent applications can be thought of as intellectual property. The applications likely will issue as patents, in some form. On the other, a patent application represents a work in progress that is kept secret during the examination process. Also, the claims of a patent application likely will change as the application is examined at the Patent Office. Dell Computer also left unresolved the question of whether liability attaches for an unknowing failure to disclose patent rights. The FTC was careful to note that it was not establishing a general rule that liability applied for inadvertent failures to disclose — only that liability may attach when the failure is knowing. Another issue Dell Computerleft open was the extent and nature of patent searches. Must a database of patents be maintained? Must employees attending standards meetings be informed of patents? The FTC was careful to note that it was not creating a general duty to search for patents, but that if expectations of disclosure existed at the standards body, a duty to perform some kind of search may exist. The exact nature of the search was left to the facts of each case. Despite leaving some unanswered questions, Dell Computerstill holds important lessons for companies, both large and small. For large companies, Dell Computersuggests that it is important to keep track of employees’ activities before standards organizations. The FTC specifically stated that the actions of the employees of Dell bound the corporation. A company may not use ignorance of the activities of its employees as a defense to charges of standards abuse. Along with monitoring, training of employees may be important in light of Dell Computer. The FTC noted that a standards body may have unwritten expectations for members, in addition to written requirements. It is important that both employees and corporate decision-makers be aware of both the written and unwritten rules of the standards organization. In addition, Dell Computersuggests that some searches of patent portfolios may be required. In these cases, it is important that such information be available to corporate decision-makers. For companies with large portfolios, it may prove helpful to organize these portfolios, so that information may be retrieved easily. Again, Dell Computersuggests that claims of ignorance of one’s patent portfolio may not prove a successful defense to charges of standards abuse. Although having a definite impact on large corporations, the Dell Computerstandard may present greater challenges to smaller companies. Large companies have resources to track disclosures and educate employees who attend standards meetings, but smaller companies may lack the resources to perform either of these services. Indeed, such companies may not be able to even send employees to standards meetings. However, even without the resources of larger companies, there are actions a small company can take to preserve standards-related defenses and comport with Dell Computer. For example, the small company should become as well informed as possible concerning patents that cover a standard the company desires to implement in its products. Often, standards organizations make public disclosure of lists of those holding patents. Sometimes these lists are available over the Internet. Moreover, if employees attend standards meetings, it is easy for these employees to ask questions concerning patent rights and record the answers. Becoming informed is especially important if a company may wish to preserve an estoppel defense. One of the elements of proof of estoppel is the detrimental reliance of the defendant upon the actions of the plaintiff before the standards organization. See, e.g., A.C. Aukerman Co. v. R.I. Chaides Construction Co. Inc., 960 F.2d 1020 (Fed. Cir. 1992). In view of Dell Computer, a small company is unlikely to succeed with such a defense unless it has made some efforts to determine if patents covered the standard in question. GOOD RECORD-KEEPING CAN BE OF USE TO EITHER SIDE Good record-keeping is also important for establishing and proving the nature of any unwritten patent disclosure policy of the standards organization. The notes of those from the company who attended standards meetings may play an important role in a court’s assessment of what the unwritten policy of the organization was, and, in particular, whether this unwritten policy required disclosure. Records also will show whether the written and unwritten policies of the standards organization have changed over time. A defense based on standards abuse requires evidence of the nature of the written and unwritten policies of the standards organization at the time the standard was approved. If no records exist as to what the policy of the standards body was at a particular time, it may be difficult to form a defense based on standards abuse. Records also will show whether alternatives to a patented standard existed at the time the standard was approved. Dell Computermakes it clear that the existence of alternatives to a patented standard will be an important factor in any liability determination. Thus, Dell Computerhas emerged to provide courts with an important set of guidelines for determining the existence of standards abuse. Although the case does not resolve all possible issues, companies now can plan their standards activities with some certainty to avoid charges of standards abuse or to preserve standards-related defenses. Baumann is an associate at Chicago’s McDonnell Boehnen Hulbert & Berghoffspecializing in the prosecution and litigation of patents with complex technical subject matters. He can be reached at [email protected]. The firm represented 3Com Corp., a counterdefendant in the Townshend case discussed in this article.

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